Small Cap Oil And Gas Operator Venoco, Inc. (NYSE:VQ) Has Best ROE Among Peers

  on Jun 27,2012 Posted in Investment Ideas ,Small Cap Ideas
 
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Return on equity is a time-honored metric used to gauge a company’s ability to turn assets into profits. A company with the highest ROE compared with rivals is most likely to bring the best returns to shareholders. This financial ratio is often said to be the ultimate ratio or ‘mother of all ratios’ that can be derived from a company’s financial statement.

In addition, a company can only create shareholder value, and better earnings, if the ROE is greater than its cost of equity capital. This is the projected return shareholders require for investing in the company given the particular risk of the company.

ROE takes into account the three pillars of corporate management including profitability, asset management, and financial leverage. By considering how well the top management balances these components, investors can not only assess management’s ability to get the job done but can also get a better view of whether they will receive a decent return on equity.

Venoco, Inc (NYSE:VQ) was able to keep return on equity at 424.14% in the previous twelve months while Reuters data showed that average peers maintain 18.70% while the broad sector average stands at 11.93%. The stock is up 48.60% this year and currently trades about 32.66% below 52 week highs. VQ an independent energy company, primarily engages in the acquisition, exploration, exploitation, and development of oil and natural gas properties primarily in offshore and onshore California.

Among rivals, Berry Petroleum Company (NYSE:BRY) has a return on equity of -15.23% over the last twelve months. The stock fell -21.11% so far this year and currently trades about 8.59% above 52 week lows. Berry Petroleum Company is an independent energy company that engages in the acquisition, exploitation, exploration, production, and development of crude oil and natural gas in the United States.

Another direct competitor Occidental Petroleum Corporation (NYSE:OXY) is down -14.64% this year and the share price is about 25.91% below 52 week highs. The company has generated 18.74% profit on equity over the past 12 months. OXY engages in the exploration and production of oil and gas properties in the United States and internationally.

 Disclosure: Opinions expressed in this article are those of the authors alone who have no stake in any stocks mentioned, and do not plan to acquire any stake within the next 72 hours.

 



 

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